Stock Exchange: The drop in BCE rates, good news for equity investors?

The European Central Bank has just lowered its key rates again, a decision generally favorable to the equity markets. But in the context of the crisis triggered by the announcements of Donald Trump, the effect could well be limited.

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Finally good news for European scholarships? This Thursday, April 17, the Council of Governors of the European Central Bank (ECB) acted a new decrease of 0.25 points of its main guiding rates, the seventh since June 6, 2024. A decision likely to delight candidates for real estate purchase, who should see the cost of their credit drop. But also, at least at first glance, for investors on the stock market. The drop in guiding rates is indeed generally favorable to equity prices. A boost that would be more than welcome in the stock market marasm triggered by the announcements of Donald Trump on customs duties.

“From a financial point of view, the stock market price is determined by expectations on the level of future dividends”explains Eric Dor, director of economic studies at IESEG. However, when the guiding rates drop, the expectation of future dividends increases. Because what is true for borrowers is also for companies: with a Credit of credit which decreaseslisted companies can finance more easily – and at a lower cost – their activity and their future growth, with, at the key, a potential increased remuneration of shareholders.

“”A rebound in actions is illusory»»

Here is for theory. But with the stock market crash triggered by Donald Trump’s announcements on April 2, this new lowering of guiding rates should not have the same range as usual: “A rebound in actions is illusory, as long as there is no lasting return of liquidity. Currently, the exchange volumes are very low, in terms of what they were in March 2020, in the midst of the COVVI-19 crisis ”says Christopher Dembik, investment strategy advisor at Pictet AM. In other words, the level of economic uncertainty It is so high that there are very few requests on the financial markets for securities (stocks, bonds) of companies. However, when the demand for an asset is low, its value is sealed.

Logic, for Eric Dor: “The uncertainties are so strong on the future business outlets, in particular large exporting companies listed on the stock market, that the drop in the cost of credit will have little impact.»» For Christopher Dembik, “he is likely that this situation will continue as long as there is no Visibility concerning the American trade war»». From this point of view, it will be necessary to look at the negotiations which start between Japan and the United States on customs duties, and which could reassure investors on the continuation of events, indicates the economist.